Project Cost Overrun - Where Do Entrepreneurs Lose the Most Amount of Money?

[1] Fixating on an Over-Complicated Design

It’s a classic trap that many entrepreneurs fall for when they start off from the wider end of the funnel and make their way to the other side. The ideology here is to “provide the users with everything there is to offer” and then refine the product based on what the users like in their product. This process is not only expensive for you and overwhelming for the users but also shows a lack of brainstorming during the foundational stages of development.

The right approach to maximize the chances of success is actually the exact opposite, starting from the narrow end of the funnel with a thoroughly researched product idea, marketing it to the group of users that are struggling with the issue you are trying to solve with your product to establish a strong and loyal user base first. And later expand the offerings gradually as new users with additional requirements start joining in.

[2] Prioritizing Cosmetic Features over Core Functionality

A study shows that 80% of a product's usage comes from 20% of its functionalities, while the remaining 80% of features are rarely or never used (Pendo, 2019). This clearly showcases that most of the features that stakeholders decide to add to a product are in some capacity or the other, irrelevant to the users. So what’s the point of developing these features? It is not only expensive to build such a product, but also resource burning to maintain over time.

While some big guns like Meta and others experiment with new features in their product from time to time, you as an early-stage entrepreneur might not have the financial legroom to experiment in a similar fashion. You should simply stick to what is important instead of adding everything that’s trending in the market only for it to become irrelevant in a week or two.

[3] Hiring People with the Wrong Set of Skills

The sad truth of the market stands, more so than often service providers inflate their skills in front of clients to close a deal, thinking they can absorb the intricacies of the unknown technology as and when they develop your product. But in reality, it is as sketchy as it sounds. The messed up part is that you wouldn’t even understand the difference until and unless you experience a product made by someone who is genuinely experienced.

Always demand to take a look at their prior work on the technologies, and scour online forums to find testimonials about the service providers from people who have experience working with them. And above all keep your ears open to identify any red flags possible.

[4] Overscaling Your Product

Imagine booking an entire stadium to host a family get-together. Does not sound very resource-efficient right? That’s exactly what some entrepreneurs do during the development of their products. Don’t get us wrong it is not bad to be aspirational, in fact, you should lay the groundwork of your product in a way that you can scale it easily as and when the demand for it surges.

However, what does not make sense is paying for a server that can host a million people at once while the current footfall on your product is barely touching a thousand users. Spend some time evaluating the market, try answering questions like -

1. How many users in the market are actually looking for a solution that you are offering?
2. What is the YoY growth of the number of service seekers?
3. How many competitors are you dealing with and what is their current market share?

With answers to these and more similar questions, you will have a firm idea of the current scale you need to take your product to, mitigating the expenses you would otherwise have to bear on random server, database, or API costs.

[5] Digressing Way Too Much From the Initial Product Plan

Having a closed product plan from the very beginning may seem outdated, inflexible, and time-consuming, but arguably, it is still better than starting a project aimlessly with a “go with the flow” mindset. This isn’t just an intuition, stats back this statement, a study shows approximately 65% of projects failed in the absence of a firm plan from the inception. The primary reason for the high failure rate is the room for ambiguity in the overall business logic while stacking new functionalities on top of the ones built previously.

The opportunity for multiple “What If?” questions emerge in such a development method leading to many tangents in the user flow, generating bugs and impacting the overall user experience in a negative way.

[6] Hourly Payments Without a Firm Plan

If you choose to go for an hourly-based payment method, you must have a clear roadmap of your project ready beforehand that you can share with your developers. In its absence, the developers may have to spend an unreasonable amount of time exploring the options that might fit in well with your “idea”. This will cost your business money with practically no progress in the actual development of the solution.

With an hourly-based payment method and the lack of a firm plan, collectively focussing on the critical pain points becomes difficult. The developers may fail to interpret your requirements accurately and spend hours developing a functionality that you hoped to implement in a separate version sometime later.

[7] Working with Followers Instead of Leaders

We emphasized a lot on the entrepreneurs having a map of the project ready in their heads that can be discussed with the development partners to avoid unnecessary expenses. But sometimes, people misinterpret it into thinking that the entrepreneurs have to know each and every intricate detail about the project. That’s not the case, as long as they can deliver an overall idea of how the various user journeys will look like and the other logical flows the development partners can carve a solution out of it with ease.

If that is not the case for some reason and the developers expect you to guide them through every minute logical detail. Or, if you get the impression that they are not putting in the right effort to logically think through the solutions for the questions they are asking, you should consider looking for better development partners who actually enhance your development cycle instead of being a liability.

[8] Overdoing the Micromanagement Bit

Developers thrive when they are allowed to work autonomously, as it helps their innovative side to come out and work at its fullest potential. While you as an entrepreneur might be eager to keep the quality of the solution in check which forces you to go and ask about the updates pretty often, overdoing it might have significant drawbacks on your product.

Firstly, being constantly bugged with questions and suggestions builds a level of frustration among the developers that makes them feel mistrusted and undervalued. It brings down their productivity as they have to spend a substantial amount of time building reports showcasing their product instead of spending that time on development.

Even your own time being spent micromanaging the developers can be leveraged in higher priority tasks like - strategizing, business development, and other tasks. For the best possible outcome, you have to let the developers do their work unbothered and discuss the updates with them at the end of every milestone when they have made visible progress in the product.

[9] Overlooking Technical Debt

While the developers might cut corners intentionally or intentionally, technical debt can cause complications within your product in the long run. This leads to overhead costs that can wipe away your profits over time with increased maintenance costs, hindered scalability, and decreased performance and reliability.

The primary reason behind the accumulation of this technical debt is limited time constraints and technical proficiency that lead the developers to cut corners, avoid implementing the best practices, and not test the product thoroughly. It is extremely crucial to strike the perfect balance between the quality of the product and the time required for its development.

To mitigate the risk of technical debt emerging after the development cycle is completed, both the developers and the entrepreneurs should prioritize - setting up realistic goals to make sure the developers have enough time to implement the best possible solutions, encourage open communication, assign time for refactoring that allows the developers to discuss the things that were missed out during the discussion phase along with assigning time slots to cover these additional tasks.

[10] Laid Back Testing

Users do not appreciate a product full of disruptive bugs and inconsistencies. In order to avoid that, thorough testing of the product is required as often as possible to make sure that the product is working seamlessly across all the intended and unintended scenarios. But some developers take testing very lightly which impacts the long-term image and revenue generation of the product.

Laid back testing leaves critical issues behind which surface when the product is exposed to the masses. Solving a bug at that stage might be much more expensive than it would have been in the development phase due to the downtime, reputation backlash, and frustration buildup your application might have to endure.

Try partnering up with developers who prioritize extensive testing of the product covering all the corner cases before completing the development cycle. Additionally, avoid launching the product in one go, practice alpha and beta testing launches first to further refine the product before the final release.

[11] Not Setting Up Damage Control

It is quite ambitious to think that you can go through an entire development cycle without facing a single issue. At some intensity or the other, it does happen in every development cycle. Setting up proper damage control strategies for such situations is sensible to mitigate the loss of development hours and resources.

Implementing damage control protocols like version control, automated backups, code assessments, and ensures that the impact of any issues that emerge during the development phase is minimal. Worst case scenario, in the absence of such precautionary measures the developers might be forced to create a product vertical all over again.